Searching Bugzilla (http://nagoya.apache.org/bugzilla/) for "xalan cdata" turns up four existing bugs related to CDataSection processing. I haven't checked whether yours is a duplicate of one of these. If it isn't -- and the difference between DOM and SAX processing suggests it may not be -- I'd suggest entering it there to make sure we don't forget to consider it when working on the others.
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Joe Kesselman / IBM Research
